Mobile loan rates now under CBK control


Mobile loan rates now under CBK control

President Uhuru Kenyatta promulgates parliamentary bills at the State House in Nairobi on December 7, 2021. PHOTO | PSCU

The Central Bank of Kenya (CBK) will start controlling interest rates on mobile digital loans and ban lenders who share the personal data of defaults under a new law that aims to protect Kenyan borrowers from predatory lending.

President Uhuru Kenyatta enacted the Central Bank Bill 2021 on Tuesday, making legal changes that for the first time put digital lenders under the supervision of the banking regulator.

The CBK law of 2021 will see lenders seek central bank approval for the pricing of their loans and products, subjecting them to the same rules as commercial banks.

The new law also grants the banking regulator the power to revoke the authorizations of digital lenders who violate the confidentiality of personal information to prosecute defaulting borrowers.

It aims to stop a trend where some lenders are resorting to “shameful debt” tactics to collect their loans.

There have been reports of debt collectors suing borrowers by notifying their friends and family using contact information pulled from their phones or threatening to tell their employers.

The law also comes amid growing concerns over predatory lending by mobile loan providers, with borrowers not having full access to information on prices, penalties for default and the recovery of unpaid loans.

“The amended Central Bank Act of 2021 gives the Central Bank of Kenya the power to authorize digital lenders in the country and ensure the existence of fair and non-discriminatory practices in the credit market,” said Tuesday. a statement from the State House. afternoon.

Digital lenders will now set the interest rates on their loans within parameters approved by the CBK in an effort to protect borrowers from predatory loans that have thrown many into the debt trap.

In recent years, businesses have flooded the local market, attracted by the demand for rapid credit that does not require collateral. Borrowers get loans in minutes through their cell phones, making digital loans a quick fix for everyday bills.

The CBK says borrowers using digital loans from unregulated lenders have grown to over two million two years ago, from around 200,000 in 2016, underscoring their popularity.

However, the proliferation of lenders has imposed high interest rates on borrowers of up to 520% ​​per annum, leading to an increase in defaults and an ever-increasing number of defaults.

“The bank may suspend or revoke a license by written notification to the licensee if the licensee (digital lender) violates paragraph (2A) or the conditions of the Data Protection Act or the Data Protection Act. consumer protection, ”says the new law.

Data protection law prohibits the sharing of data with third parties without consent and gives individuals the right to be informed when their data is being shared and for what purposes.

Borrowers share personal information, including occupations and monthly income, when registering with digital lenders.

But besides chasing bad loans, digital lenders share personal information with companies for data analysis and marketing purposes.

The CBK has previously raised concerns over the misuse of borrower personal data and called on lawmakers to speed up legislation to provide for regulation of digital lenders.

Lobbies that petitioned parliament when considering the bill also said loan applications are private matters and should be treated as confidential information.

Data protection law further obliges companies to disclose to individuals and customers the reasons for their data collection and to ensure that confidential information is safe from breach by unauthorized parties.

The CBK will also have the power to revoke or suspend the licenses of digital lenders who do not disclose complete information on loan facilities to borrowers, in accordance with the Consumer Protection Act.

The Consumer Protection Act requires sellers to disclose to consumers all relevant information related to the purchase of a good or service.

New laws

The President also approved the Public-Private Partnerships Bill, which repeals the 2013 legislation by providing an elaborate legal framework to cover PPP projects at the national and county levels.

In addition, the new law expands the role of the private sector in PPP initiatives beyond finance to include construction, operation and maintenance of projects.

The Trustees (Perpetual Succession) (Amendment) Bill was also enacted, which simplifies the registration of trusts, among other reforms, by transferring the administration of the process to the new office of the Chief Records Registrar.

*Updated story.